Nifty may slip below 4530 after a bounce: cashthechaos.com

Jai Bala, chief market technician of cashthechaos.com says, the market is extremely oversold at this point in time. “You might see the Nifty bounce to somewhere closer to 5,050." However, he says, the market will then reverse lower and head back to the lows below 4,530.

Jai Bala, chief market technician of cashthechaos.com says, the market is extremely oversold at this point in time. “You might see the Nifty bounce to somewhere closer to 5,050." However, he says, the market will then reverse lower and head back to the lows below 4,530.

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The Indian market has been subdued over the last few sessions. Jai Bala, chief market technician of cashthechaos.com says, the market is extremely oversold at this point in time. “You might see the Nifty bounce to somewhere closer to 5,050 or if it’s got little more strength, maybe even 5,130,” he adds.

However, he says, the market will then reverse lower and head back to the lows below 4,530. “The dip below 4,800 is a very critical and establishes a fact that my technical interpretation of the market was correct. To me, new low for the market is a guarantee at this point in time,” he asserts.

Below is the edited transcript of his interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: How are you playing it on the index now? What kind of downside momentum do you expect to see on the Nifty itself?

A: The price action that came through on Friday is a very important price action. I have been saying the rally from the December lows is a bearish and a big bad market rally. The dip below 4,800 is a very critical and establishes a fact that my technical interpretation of the market was correct. To me, new low for the market is a guarantee at this point in time. There are no guarantees in the market, but that’s what my technical interpretation says.

From hereon, the market is extremely oversold at this point in time. So, you might see the Nifty bounce to somewhere closer to 5,050 or if it’s got little more strength, maybe even 5,130. If that’s the case, you might see some short-term buying come into some frontline stocks and you might see people come out and say there is deep value. That’s what's happening. The market has bottomed out, but then the market will reverse lower and head back to the lows below 4,530.

Q: Last week the weakness seemed to be confined and focused on the auto names. What do you see on the charts of some of those auto faces like Tata Motors , Bajaj Auto ?

A: Tata Motors, from a medium-term perspective, still remains a very strong chart. I cannot be sure that the short-term downsides are done. But if you are positioning yourself for the medium-term, you would want to start nibbling onto Tata Motors from Rs 260-240. I think Rs 240 area is a very strong support. I think it might try to mount a big move from there.

If you look at Maruti in the auto space, it should have not gone below Rs 1,250. That was another strong stock, but it actually had gone below that level. I think even the strongest stocks are starting to breakdown. If you looked at the last months of the auto stocks and cement stocks in the previous decline, they were all outperforming. But during this decline, even they are starting to breakdown. So, I think weakness is starting to come into the auto sector too.

A: Yes, it is a cross market related play. I think gold has been terribly oversold at this point in time. Huge number of people are bearish on gold at this point. I think Titan has a good opportunity to bounce from here, but it might be a little bit volatile. It might do a back and forth kind of movement before embarking on a much more directional move. So, you might want to place a stop below Rs 215 and look for the stock to scale about Rs 255.

Q: What do you do with some of the metal counters now, especially given what's happening with the metal prices themselves? Do you see significant downside on things like Tata Steel , Hindalco ?

A: If you recall my last few interactions, I have been negative on the metal sector. I had said Hindalco would go to new lows and possibly double digits. I had short strategies on SAIL . They have all come through and they all have hit targets.

Despite hitting those targets and being oversold, they don’t look strong at this point in time. I think they might have little more downside, but I was a little bit relatively bullish within the metal sector on Tata Steel. So, if Tata Steel breaks Rs 390, I think it will join the rest of its peers in the metal sector and even that it will also start trending much lower.

Q: How would you approach trading now? For now, would you cover up your shorts and then look to re-engage shorts above 5,000? What would be a prudent trading call now?

A: That will be an ideal strategy. But the markets need not respond to an oversold level. The problem with the markets not responding to an oversold level is that it chases away the dip buyers. If the market doesn’t bounce at this point in time, it can lead to a disastrous situation. I hope the market bounces. I am positioning for a bounce here. I have covered up whatever shorts that were there in the market. I think a decent bounce to about 5,050 or even closer to 5,100 is reasonably possible.